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Daniel Rodriguez-Segura
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I thought that this analysis of the demand for emerging-market debt in global markets was very engaging. As some of my classmates have pointed out, by taking into account the “missing link” or the willingness to supply these debt obligations, the authors are able to explain better the financial market for national bonds. However, the paper does not go in much depth into what actually determines this demand. Certainly, the opportunity cost of supplying the debt and the international spreads can have an effect on countries deciding whether they want to issue debt or not, but so does their fiscal and financial conditions, for instance. Similarly, things like political affiliation of ruling party (more left, government spending or more right, fiscally conservative) can determine this “hunger for debt”. It is important that in most cases, countries are borrowing and expanding their balance sheets to pay for national programs or infrastructure (broadly speaking). Therefore, the demand for debt could also be determined by the different needs of a country that are not necessarily implicit in a credit rating (which they did take into account). A side comment: an interesting research question to look into is to see the relationship between increases in issuing foreign debt in global markets and population well-being with a lag. In other words, one would be exploring whether these investments are having any effect on the population. Then, one could see how things as seemingly detached to reality as “the spread” can have important effects on some countries’ population well-being.
Toggle Commented Nov 18, 2015 on ECON 280 for Thursday at Jolly Green General
As I was reading the article, I was thinking about how we have talked in class about how technology has expanded our resource frontiers. I couldn't stop thinking about whether this would be true here as well: are we capable of adapting to this if we can't mitigate it? For example, will we be able to create coastal barriers to protects cities from flooding, or devise better irrigation methods to avoid droughts? I am by no means saying that mitigation is not important, I am just trying to figure out why, if we can adapt to other circumstances, this wouldn't be one of those. I was also very intrigued the geographical extent of this phenomenon, and how it would shape the global migration patterns. Part of the refugee crisis we are seeing in Europe is said to be due to rough droughts in some countries. If global warming is expected to create many more, then the development plans and infrastructure of those countries that would be not as affected by global warming should take into consideration that they are likely to be the next receiving countries of several future immigrant waves.
Toggle Commented Nov 11, 2015 on ECON 280 for next Thursday at Jolly Green General
I found the Sachs article especially interesting because it is a strong collection of evidence that supports the environmental pathways to development as a pre-requisite for most other drivers of growth. In other words, it implicitly argues that the development of North America and Europe, while perhaps driven by institutional strength and historical accidents, had to be preceded by favorable climate conditions. He does not say that things like macroeconomic stability or democratic regimes do not help development, but he stresses that the environment (tropical climates) can lead to different diseases (malaria) that may results in poor economic and human outcomes (low levels of education, weak labor markets, higher fertility, lower FDI and trade, etc.). I found very interesting that they brought up how weak the current efforts to eradicate malaria are, in spite of all the human and economic losses. This point brings up a “Rawlsian” ethical argument about the duty of the rich countries (well-endowed in terms of climate) to help the poorer countries. More succinctly, if behind the “veil of ignorance”, a country does not know if it will have high or low malaria risk, then will he choose one in which the rich help the poor or not? If we agree that people (or countries) are more averse to the risk of being poor and without help than attracted to being rich without having to help, then we would agree to an international network of aid. Another strong argument for the rich helping the poor to eradicate malaria is that this article shows how much trade and FDI are forgone due to malaria. If we accept the standard economic theory that in the long run, free flow of goods, services and capital brings net gains for countries, then an attempt to eradicate malaria in poorer countries might actually benefit the richer countries in the long run.
Toggle Commented Nov 4, 2015 on econ 280 for Thursday at Jolly Green General
The article’s focus on the different ways in which the “Washington consensus” can be a broad guide with room for creativity, was constantly supported by the mention of the key role of institutional development in supporting growth. This does not necessarily rule out the role of investments and physical capital in growth as we discussed on Tuesday, but it does acknowledge that just as the policy prescriptions are not as specific as one might imagine, the growth process is not as dependent on a single input as some models can indicate. Rodrik actually says “The growth-spurring strategies described above have to be complemented over tie with a cumulative process of institution building to ensure that growth does not run out of steam and that the economy remains resilient to shocks” (Rodrik, 25). Once we understand that institutions might play just as big of a role as investment in physical capital, we can understand why Swaziland may not experience growth in spite of their “white elephant” projects that seek to increase investment, and why places like Uruguay and Costa Rica may have experienced more sustained growth than their neighbors even if their neighbors might have sought out larger investments in physical capital more persistently. More broadly, it was interesting to learn about a much more moderate position regarding policy prescriptions. Rodrik’s openness to creativity in the adoption of the “Washington consensus” prescriptions seemed to be a lot less ideologically tainted than most economists but especially politicians. The key message that policy makers should get from this is that ideology may be more useless than what they would expect, as different approaches to the same issue might lead to the same outcome (growth). The example of how China’s “unorthodox” approach and other countries that were much more market-driven like Chile, both obtained their desired outcomes, in a very much “path-independent manner”.
As I was reading this article, I started to question the way I pictured people's decision making. In high school, I learned about Maslow's hierarchy of needs and how most people will have to fulfill the most basic physiological needs to be able to move the the other needs like social engagement, a feeling of security and "self-realization" or happiness. However, this article contradicted this thought: people do not need to fully meet their food needs, for example, to move on to their social needs (festivals). In this sense, the article does not portray humans as uni-dimensional beings that move only upwards in the hierarchy of needs, but rather as complex, multi-dimensional individuals that have competing needs and desires. Similarly, I was relieved to see that the article did not "romanticized" the poor: it simply described their choices as constraint by their budgets and tried to draw general patterns from this, without making any judgment of character. I think this might have to do with the realization that we are not all just on a spectrum of needs met in which some of us are more "self-realized" than others (the poor), but that we instead have similar aspirations and needs. Similarly, the article reminded me of Poor Economics, by the same authors, and one of the most shocking insights I got from it: unlike what we generally tend to think, the poor make more, not less, decisions than us. This, they argue, is because many decisions are already made for us. For instance, we do not choose whether we should add chlorine to the water or not subject to our budget, and in most cases, we do not choose to save for retirement (the U.S. might be a bigger exception). Instead, the government or other forms of social institutions make these decisions for us. On the other hand, the poor need to be constantly thinking about details that we take for granted. For instance, the article talks about job diversification for the same individual. This individual needs to be thinking about what the best use of his/her time is, what occupations might be complementary to his/her other occupations, and how to learn the very basics of it. Instead, we take for granted that the labor market and specialization levels are large enough so that this would not usually be an option, at least in dramatic career jumps (let alone different jobs at the same time). Clearly, there are people that do it, but the general trend is different from this.
Aside from describing the evolution of the discipline, I thought that the Krugman article dealt in a very interesting way with the politics of academia and the repercussions that this might have on the expansion of our body of knowledge. The dichotomy presented between the “inevitable” moving towards more (mathematical/formal) models and the more abstract concepts, like those presented by Hirschman, is not at all portrayed as constructive competition between two schools of thought, but as a vicious process that pushed one of the two out to irrelevance. This seems to have resulted in little progress in the discipline, along with lost potential of researches that perhaps had correct ideas but “could not quite express in fully worked-out models”. Before reading this, I had not fully thought of how academia could push researchers to its periphery just because they were not using the standard frame or were challenging the status quo, and this article really put some flesh to the concept by giving a fine example of the possible consequences. It actually reminded me of a quote I heard Noam Chomsky say once, referring to most academics as a “herd of independent minds”. This is not to fully disagree with Krugman: I think that standard, mainstream models can certainly expand our knowledge, but perhaps Krugman does not acknowledge how much more could have been achieved had the core academics not behaved (perhaps “rationally”?) as this “herd”. Yet, Krugman’s recommendation of continuing to work with models without discarding other ideas (potentially even disciplines) because of the way they are approached seems to be an enriching compromise between the two views in academia, and one that I am glad to continually see in my undergraduate Economics classes.
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Sep 15, 2015